10. private information with negative value Return to Table 17.7, and assume the manager is as specified in problem 4 above. Input H is desired, regardless of any information. Initially suppose no information is available, either publicly or privately.

Determine and interpret an optimal pay-for-performance arrangement.

(Assume the manager can post a large performance bond.)

Next, suppose the g or b environment is privately revealed to the manager before acting; this revelation cannot be communicated to the firm. Determine and interpret an optimal pay-for-performance arrangement. How much would the firm pay to keep the manager from observing this information? Does the manager benefit from having the private information? Why?